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Sir i cannot understand this. What is the difference between revaluation surplus and gain on revaluation?
If we have a revaluation surplus of $100,000 then we shall record it in SOFP as equity item and gain on revaluation in other comprehensive income but how do we calculate the gain?
Secondly, lets say we have a gain of $20,000 then we will record it in OCI and reduce the Revaluation surplus from SOFP to $80,000?
Please explain
There is a gain on revaluation each time an asset is revalued – gain and surplus mean the same thing.
Each time there is a gain or surplus then the Revaluation Reserve in the SOFP increases by the amount of the gain or surplus. If there is a gain of 20,000 in your example, then the Revaluation Reserve will increase to $120,000.
Have you watched my free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
BUT i read that “whenever an asset’s carrying amount is increased as a result of a revaluation then this gain is recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus”.
The journal entry would be:
DR NCA cost (difference between original amount and fair value)
DR Accumulated depreciation (less any accumulated depreciation]
CR Revaluation surplus (gain on revaluation recognised in OCI)For example a company purchased a building on 1 April 20X1 for $100,000. The asset had a useful life at that date of 40 years. On 1 April 20X3 the company revalued the building to its fair value of $120,000.
Calculation for gain on revaluation:
PPE Carrying value = $95,000
Revaluation amount = $120,000
Gain or loss on revaluation = $25,000The journal entry would be at 1 April 20X3:
DR Building cost $20,000
DR Accumulated depreciation $5000
CR Revaluation surplus $25,000Is it also correct that we shall record the revaluation surplus of $25,000 in SOFP as equity item as well as in SOPL as profit on revaluation in other comprehensive income
Revaluation surplus:
Equity item = $25,000
OCI item = 25,000Is that all right?
Yes, that is correct.
The equity item is the Revaluation Reserve and increases by the surplus on each revaluation.
The SOPL itself is not affected, but in the Statement of Comprehensive Income we show at the end the amount of any revaluation surplus during the year.Again, have you watched my free lectures on this where I do explain>?
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